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Dollar Hollar: USD Dragged Down By Dovish FED Rhetoric

Dollar Hollar: USD Dragged Down By Dovish FED Rhetoric

Dollar Hollar: Comments from two top fed officials suggest that the Fed is in no hurry to hike rate when they meet next month. New York Fed chair William Dudley cautioned against tighter financial conditions in the US, scaling back market’s expectation of a hike in March. The dovish statement backed oil rally, pushing Brent oil prices to USD 35/barrel. Data on the US front pointed to moderation in economic momentum at the start of the year. Prints from ISM and Markit affirmed slower pace of expansion in the services sector. On a brighter note ahead of Friday’s pivotal Non Farm payrolls release, job market data remained resilient although some slowdown in the pace of hiring was evident. US private sector added more employees to payroll than expected in January. Albeit lower than the 267,000 print registered in Dec, report from ADP showed that companies added 205,000 workers in Jan which reflect a resilient job market. A second report from ISM affirmed that the services sector is losing steam. Services PMI tumbled to 53.5 in Jan (Dec: 55.8), the lowest since Feb 2014 and largely in line with a separate report from Markit reiterating slower expansion in the sector.

USD plunged against all G10s while the USD Index slumped 1.6% to 97.28 after sliding throughout US session as markets continued to scale back expectations that the Fed could stay on track to normalized policy amid a slew of US data weakness and prevailing market weakness. Expect USD to come under extended pressure from dimming outlook on Fed rate hikes; continued weakness in US data would firm up the pressure. The USD Index breaking below 97.55 is a sign that bears have taken control; it must now hold above 96.50, otherwise a drop to 96.36 is likely.

Technical & Trading Takeaway

From a trading perspective my bullish exposure in the USD Index from .9700 has been removed with yesterdays price action. As i discussed in last weeks note ‘the consolidation pattern was mature and may now be developing a rising wedge pattern in the near term which would likely produce another corrective leg’. As price has broken lower the market map of the probable path of price, suggests a test of the apex of the consolidation pattern and the AB=CD swing, which i will use to re-position as highlighted in the chart above. I would be watching for an equidistant swing to retest the apex of broader consolidation pattern which at the 96.00/96.50 level where I will be monitoring intraday reversal patterns to re-enter long postilions to trade the upside pattern mapped in the chart, ultimately price would still test the 102/103.

A failure at the apex of the consolidation suggests we test bids at 94.50 next, this would be a decidedly bearish development and as such i would not be looking to buy this test lower i would wait for a corrective upside reaction to test the apex from below where i would look to establish bearish USD exposure as per the chart above.

For updates on trade of the day set ups and the other trades I am currently monitoring be sure to follow me on Twitter @LFXPatrick

Patrick has been trading for the past ten years. After liquidating several accounts in his early days he stopped 'gambling' and applied himself as a student of risk. Self taught and more self aware thanks to Mr Market. Patrick applies simple technical strategies based around market price and time structure to identify high probability trade locations.